From 2021 onwards, Libor will cease to exist, which will not be without consequences. This thesis discusses the major changes in interest rate models, specifically those applicable to the pricing of caplets in the context of the new world of risk-free rates. Indeed, the challenges arising from lack of liquidity will be addressed. We attempt to replicate the volatility smile of the new instruments using the Backward SABR model. Moreover, we will implement a new approach, based on the kernel Hull White model, from which an analytical pricing formula for backward caplets is derived. Finally, we will present calibrations of the different models discussed, achieved via Monte Carlo simulations, to assert our hypotheses and approximations.
A partire dal 2021, il Libor cesserà di esistere, il che non sarà senza conseguenze. Questa tesi discute i principali cambiamenti nei modelli di tasso d'interesse, in particolare quelli applicabili al pricing dei caplets nel contesto del nuovo mondo dei tassi risk-free. Infatti, saranno affrontate le sfide derivanti dalla mancanza di liquidità. Tentiamo di replicare il smile di volatilità dei nuovi strumenti utilizzando il modello Backward SABR. Inoltre, noi un nuovo approccio, basato sul modello kernel Hull White, da cui si ricava una formula analitica di pricing per i backward caplets. Infine, presenteremo le calibrazioni dei diversi modelli discussi, ottenute tramite simulazioni Monte Carlo, per affermare le nostre ipotesi e approssimazioni.
The quantitative impact of Libor transition
Saber, Hamza
2020/2021
Abstract
From 2021 onwards, Libor will cease to exist, which will not be without consequences. This thesis discusses the major changes in interest rate models, specifically those applicable to the pricing of caplets in the context of the new world of risk-free rates. Indeed, the challenges arising from lack of liquidity will be addressed. We attempt to replicate the volatility smile of the new instruments using the Backward SABR model. Moreover, we will implement a new approach, based on the kernel Hull White model, from which an analytical pricing formula for backward caplets is derived. Finally, we will present calibrations of the different models discussed, achieved via Monte Carlo simulations, to assert our hypotheses and approximations.File | Dimensione | Formato | |
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2021_10_Saber.pdf
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https://hdl.handle.net/10589/179785